Bankruptcy Court Rejects FDIC’s Claim for Capital Shortfall

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A failure of an FDIC-insured depository institution frequently results in a Chapter 11 bankruptcy filing by its parent holding company. The FDIC often asserts claims against such a holding company related to an alleged capital maintenance commitment. In a recent decision, a bankruptcy court rejected on several grounds a $900 million claim by the FDIC in regard to such a purported commitment. This update discusses the decision and its potential implications.